Activision Share Price Drops 10% Following Earnings Statement

Posted By: Paul YoungerFebruary 10, 2011

Activision’s stock price has fallen by 10% following yesterday’s release of an earnings statement which included news of hundreds of layoffs, the end of the Guitar Hero series and further focus on the Call of Duty series.
CNN attributes this stock hit to Activision’s earnings being lower than predicted (a mere $3.9 million USD profit margin, rather than the forecase $4.4 million USD.) In the bizarre world of high finance, this apparently constitutes a failure.
In the same piece, Kaufman Brothers Todd Mitchell analyst muses that the end of Guitar Hero may be linked to a move towards digital distribution, and suggests that players are no longer prepared to put up with a physical disc and plastic guitar. It’s a theory which ignores the obvious fact that any new Guitar Hero title could simply have been distributed through PlayStation Network and Xbox LIVE, and made compatible with previously released instruments.
It also ignores the possibility that the general public lost interest with the series due to an over-saturation of releases and fails to appreciate that a gimmick-based title can only survive for so long without fresh innovation.
Investors may be right to be nervous about Activision’s apparent business model, which at present relies upon maximising as much short-term profit as possible from a series, then discarding it. While Call of Duty looks strong at the moment, it may not be too long before we are writing about player exhuastion with that series as well.